O.C. Communications Employee Stock Ownership Plan Participants Hung Out to Dry in Asset Sale, Lawsuit Alleges

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A proposed class action claims that the fiduciaries of O.C. Communications, Inc.’s (OCC) employee stock ownership plan (ESOP) have failed to act in plan participants’ best interests as required under the federal Employee Retirement Income Security Act (ERISA).

Per the 24-page case out of California, ESOP participants and beneficiaries were injured financially when the plan’s fiduciaries decided to sell OCC’s and the ESOP’s assets for less than what they were worth. The lawsuit more specifically claims that a sale of the company’s assets and liabilities to defendant TAK Communications CA, Inc. in May 2019 and OCC’s redemption of the employee stock ownership plan’s shares in December 2020 were both executed at unfair market rates.

According to the lawsuit, “[n]o prudent or loyal fiduciary for the ESOP would have allowed those transactions to occur under those circumstances.”

The suit relays that OCC, a fulfillment provider for cable and phone companies, established the ESOP in 2011 as a means by which its employees could save for retirement and be given an ownership interest in the company. According to the lawsuit, the ESOP purchased 3,333,333 shares of OCC common stock in December 2011 for a price of $3.45 per share.

By the end of 2018, OCC was “a successful and growing business” that employed more than 1,500 employees and 3,000 contract technicians across the U.S., and ESOP participants were informed that their shares were worth $2.21 each at the time, the suit relays.

Despite OCC’s position as a “thriving company with offices across the United States and throughout California,” the company entered into an agreement in May 2019 with TAK Communications through which it sold “substantially all operating assets and liabilities” to TAK for only $7.2 million, the case shares. OCC’s value at the time was estimated to be more than $24 million, according to the complaint.

The lawsuit argues that the $7.2 million purchase price for OCC was “far below” market value and suggested that the company’s assets were sold for only $0.72 per share.

After the asset sale, business at the company “continued as usual,” according to the suit, with TAK employing many of the same officers, conducting business at the same location and using the same employees and equipment.

In December 2020, the case relays, OCC redeemed the ESOP’s outstanding allocated shares for only $0.32 per share, or less than one-tenth of the price the plan paid for those shares.

The plaintiffs, two ESOP participants, claim that they were at this time unable to access any information about their ESOP accounts despite the defendants’ obligation to provide such information under ERISA.

The plaintiffs argue that the defendants, who include members of the ESOP Committee and OCC’s board of directors, aside from OCC and TAK, have breached their fiduciary duties under ERISA to act in the best interests of ESOP participants.

“Instead of attempting to obtain the best price for OCC’s assets, Defendants enriched themselves at the expense of OCC’s common shareholders, including especially the ESOP,” the lawsuit contends.

The plaintiffs seek to represent all participants in and beneficiaries of the OCC Corporation Employee Stock Ownership Plan at the time the plan was terminated.

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